Etsy Inc. (ETSY) is feeling the heat of recent market sensitivity after reporting mixed results for its first quarter.
Shares of the Brooklyn-based e-commerce company were down around 6% before Thursday's opening bell after its earnings per share came in above estimates among analysts polled by FactSet but missed revenue expectations by a very narrow margin. Analysts noted that Etsy's guidance might be the main culprit for the share price erosion after earnings.
"Etsy delivered another quarter of GMS [gross merchandise sales] growth above expectations and saw a strong finish to the quarter despite weakness in January-February, but investors were looking for more from results and full-year guidance," Wedbush analyst Ygal Arounian said.
Etsy said it expects revenue growth of 30% to 32% with an adjusted operating margin of 23% to 25%, a figure that was unchanged from its prior forecasts in February. Gross merchandise sales are expected to rise in a range of 18% to 21% as international expansion plans progress.
The numbers appear to be too conservative for the market to accept from a company with a bulky forward price-to-earnings (P/E) ratio that is approaching 100.
"We see somewhat of a dichotomy with Etsy at the moment. On one hand a new management team has come in and done a remarkable job turning around a challenged business model, has made meaningful product improvements that reaccelerated sales on the site and implemented the first price increase in the company's history," Arounian said. "On the other hand we still see a long-term demand constraint on this two-sided marketplace as we believe a craft marketplace, while having value, is a difficult one to truly move buyers to visit more frequently."
Such concerns appear to be shaving some gains for a stock that has run hard in 2019.
The Wall Street consensus on Etsy stock among analysts publishing research is split down the middle between "Neutral" and "Buy" as they argue about the shares' valuation upside.
Etsy also faces increased competition from Amazon.com Inc. (AMZN) which recently released its own artisan product offerings; Facebook Inc. (FB) which is pushing Instagram Checkout and Facebook Marketplace extensions; and Shopify Inc. (SHOP) which has quickly become a key competitor in its own right through a slightly differentiated business model for sellers.
"We compete for Etsy sellers with both retailers and companies that sell software and services to small businesses," an 8-K filing released alongside the earnings print stated. "An Etsy seller can list her goods with other online retailers, such as Amazon, eBay (EBAY) , or Alibaba (BABA) , or sell her goods through local consignment and vintage stores and other venues or marketplaces, including through commerce channels on social networks like Facebook and Instagram."
The crowded space could temper expectations that were quite high for the company coming into the quarter and full year, perhaps explaining the pullback in shares.
In the end, Etsy may have simply gotten too expensive to react in any other way without ramping up guidance from good to great.